ECB Seeks Stablecoin Reserve Overhaul Amid Liquidity Risk Concerns

The European Central Bank (ECB) and EU central banks have called for an overhaul of stablecoin reserve rules, citing liquidity risk. The current approach to managing reserves under the Markets in Crypto-Assets regulation (MiCA) requires at least 30% of stablecoin reserves to be held as bank deposits, with a higher requirement of 60% for significant stablecoins.

The ECB system argues that this requirement should be removed and replaced with minimum liquidity requirements based on the share of assets that can be converted into cash within one business day and five business days. This change aims to reduce reliance on bank deposits and instead use instruments such as overnight repurchase agreement transactions or short-term government bonds.

The European central banks view large stablecoin deposits as potentially increasing liquidity risks in the banking sector. If large-scale redemptions occur, issuers would need to quickly withdraw bank deposits, which could put banks under liquidity pressure. The proposed change aligns with a draft from the European Banking Authority (EBA) released in 2024, which required significant stablecoins to hold at least 40% of reserves in assets maturing within one business day and 60% in assets maturing within five business days.